Businesses trading food products

For many businesses trading food products, VAT often isn’t the first thing that they think of.

That is because with such a short lifespan, sales and transportation of the goods need to occur quickly as a priority. However, the EU rules on the VAT treatment of food are complex which means it is easy to get wrong.

When this happens it can lead to serious issues that could see profits being wiped out or products getting stuck in customs and spoiling. Therefore, planning in advance is a requisite for businesses in this sector.

Accounting for VAT

The first issue businesses need to know is where In the EU should they account for any VAT that is due. As food is treated as a good for VAT purposes, the place of supply (i.e. where VAT needs to be accounted for) is usually where the goods are located when they are sold. This can get more complicated however when transportation is involved, at which stage further analysis should take place to obtain certainty. This is to ensure that VAT is accounted for in the right country – and that the right VAT rules are applied.

VAT Rates

Foodstuffs – which include raw meat and fish, fruit, vegetables, and beverages (excluding alcohol) – can be liable to standard or reduced rates depending on the VAT rules of the particular EU Member State.

For example, in the UK unprocessed food is generally subject to the 0% VAT rate applied whereas items such as ice cream, potato crisps and confectionery are subject to the standard rate of 20%.

With food however it is not always obvious as to what rate of VAT should be applied to a supply. There have been many cases of the rate having to be determined in the courts because of disagreements between taxpayers and tax authorities regarding the VAT rates. Some of the more prominent cases have included:

Pringles – whether they could be zero rated because the percentage of potato in the recipe falls below the threshold to be counted as a potato chip;

Jaffa cakes – should these be characterised as a cake or a biscuit. This was critical to whether they could be zero rated or not; and

Nesquik flavoured milk – it is accepted that the chocolate flavoured product can be zero rated but a recent UK decision has deemed that fruit flavours are standard rated.

The rules surrounding the VAT rates that apply to food are complicated and they do differ from one EU Member State to another, therefore it is crucial that care is taken to ensure that you are charging the correct amount of VAT on your sales. Not doing so will not affect the amount of VAT to be recovered, but it will mean being price uncompetitive if rivals don’t charge VAT while you do.

Additional EU Obligations

As food is deemed to be a good for VAT purposes it is necessary to consider the additional obligations that must be met when moving the products cross border in the EU. We have listed some of the key points to consider below:

Chain Transactions

Sometimes a series of transactions will take place before the products are finally purchased by the end consumer. When this happens, and at the same time the goods move cross border, it is very important to identify which business in the supply chain is responsible for the cross border movement (there can be only one). This is necessary because that business needs to comply with extra rules on compliance and also collect evidence to support its VAT rate. The process of identifying this business also helps the remaining businesses in the supply chain identify in which country they make their supplies, so it is an important process for all involved.

Call off or Consignment stock

This process involves a business holding its stock in another EU Member State until the customer needs it. Only when the stock is requested, the supply actually takes place – this method of supply chain is often used in the food industry to help speed up delivery times and also where local stock is acquired in order for it to be supplied to the same local market.

Where it is applied it should be determined in advance when a tax point will be created (i.e. when VAT becomes due) and on which party the onus will rest to account for the VAT. This is important because some countries apply simplifications which shift the need to account for VAT to the customer whilst others expect the supplier to maintain this position. Knowing the specific rules will influence the obligations a business has and help inform how it manages these.

Intrastat

Intrastat is the EU-wide system of collecting information from traders to provide an overview of the dispatch and acquisition of goods between Member States of the EU. Intrastat only collects information about goods, not services.

Intrastat reports must be filed when a business’s value of sales breach another EU Member States thresholds. Intrastat thresholds differ in each country and they are liable to change each year so it is very important that you keep up to date with the latest figures applicable to your business.

EC Sales List (ECSL)

When a business supplies a VAT registered business in another EU Member State then it needs to submit ECSLs. These documents detail the value of supplies, identify the customer (via its VAT number) and identify if goods or services are supplied. There is no threshold to pass before these are required and therefore a business needs to understand its obligations to submit them in order to make sure they are completed on a timely basis.

In today’s global marketplace, which is seeing food producers competing against firms from both their own countries and abroad, getting the tax implications right up front is critical to the success of a transaction. Accordance has consultants with expertise in this area so help is at hand if you need to discuss any of the above.